Question

During the planning of audits, auditors perform tests of controls. Below are examples of typical controls found in many businesses:

1. Bank reconciliation – document showing bank balance and accounting balance with adjustments for timing differences.
2. Authorisation of payments made to suppliers by the signature of senior manager on payment instructions raised by payments clerk
3. Organisational chart showing directors and staff reporting lines.

Required:

Write down tests of controls which would give some assurance as to the effectiveness of the three controls noted above. You should write at least one procedure for each control.

Answer 1

Bank Reconciliation- To Test the effectiveness of this control, Auditor may reperform some of the monthly Bank Reconciliations which would provide assurance to the Auditor of correctness of the Bank Reconciliations.

Authorisation of Payments - Auditor may inspect the documents/vouchers related to payments to check if the Senior Manager has signed the document for payment to Suppliers

Organisational Chart Showing Directors and Reporting Lines - Auditor can observe the daily working and communication among the Staff to check whether the Reporting and Authority channels are being followed.